HANDOUT 3

RAFFA, P.C. Levels of Service
Auditing Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. Financial Audits In a financial audit, the assertions about which the auditor seeks objective evidence relate to the reliability and integrity of financial and, occasionally, operating information. The examination of the objective evidence underlying the financial data as reported is called an audit. Analytics, inquiries of management and the verification of information through evidential matter (support) external to the company (i.e., “other audit procedures”) are required.

Review Service Although a review is less extensive than an audit, review procedures do provide a basis for expressing limited assurance that the accountant did not become aware of any material changes that should be made to the financial statements. Essentially, a review is designed to enable an accountant, without applying comprehensive audit procedures, to assess management’s representations and to consider whether the financial statements appear to be in conformity with generally accepted accounting principles (GAAP). To perform a review, the accountant must be familiar with the company’s business and the accounting practices of its industry. Based on this knowledge, the accountant inquiries about the company’s accounting practices and procedures, financial statements and other matters, and performs analytical procedures to identify unusual items or trends. Performing such inquiry and analytical procedures provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the statement in order for them to be in conformity with GAAP. The objective of a review differs significantly from the objective of an audit of financial statements in accordance with generally accepted auditing standards (GAAS). The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not contemplate obtaining an understanding of the internal control structure or assessing control risk; tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation and certain other procedures ordinarily performed during an audit. A review may bring to the accountant’s attention significant matters affecting the financial statements, but it does not provide assurance that the account will become aware of all significant matters that could be disclosed in an audit.

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1) state that the accountant “…is not required to make inquiries or perform other procedures to verify.” Likewise. or review information supplied by the entity. P. relying on familiarity with industry accounting practices and with the company’s business. This allows the accountant the opportunity to consider whether the financial statements are appropriate in form and are free from obvious material errors. The objective of a compilation differs significantly from the objective of a review. of course. accountants have no obligation to obtain an understanding of or communicate deficiencies in internal control or to assess control risk when performing a compilation. such as the preparation of income tax returns. if the accountant becomes aware of significant weaknesses in the client’s internal control.C. Compilation Service The scope of a compilation does not give the accountant a basis to express any assurance. Companies find a compilation service useful mainly for internal needs or as a by-product of other services. but. No expression of assurance is contemplated in a compilation. RAFFA. since neither audit nor review procedures are performed. corroborate. Analytical procedures and the verification of information through evidential matter (support) external to the company are not required. © 2003 Page 2 . because neither an audit nor a review was performed. P. it expresses no assurance. The inquiry and analytical procedures performed in a review should provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements. A compilation is the CPA merely putting information supplied by the client into proper financial statement form without expressing any assurances. however. Also. It may also be appropriate when management engages the accountant to prepare monthly financial statements. the accountant helps prepare financial statements using data provided by the company. it is only prudent that he or she communicate those findings to the client. the accountant does not probe beneath the surface unless it is apparent that the data provided are incomplete or in error. incomplete. Instead. This. Our professional pronouncements (SSARA No. Inquiries of management are not required unless information supplied by the client is questionable. The accountant’s report that accompanies compiled financial statements indicates that a compilation service was performed. Required procedures are minimal. The verification of information through evidential matter (support) external to the company is not required unless information appears questionable.C. or misleading. Levels of Service Analytical procedures and inquiries of management are required.HANDOUT 3 RAFFA. Nor does it reduce the accountants’ responsibilities when departures from GAAP are known to them. does not reduce the accountants’ obligation to obtain additional or revised information if they become aware that information supplied to them is inaccurate.

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